Britain's biggest food manufacturer has struck a deal with its banks to give
it another four and a half years breathing space, before it needs to pay
back its £1.2bn of debts.

Premier Foods, hit by its huge debts, rising costs and a spat with its largest customer, Tesco, looked at one point to be in severe financial difficulty. In autumn of last year, some analysts predicted the company would not survive.

However, Premier Foods, which makes Hovis, Loyd Grossman sauces, Mr Kipling cakes and Oxo gravy, said it had reached an agreement with its syndicate of 28 lenders, led by Royal Bank of Scotland, as well as the company's pension fund to give it more time to pay off its debts.

The pension fund has agreed to a two-year pension holiday. Meanwhile the banks have agreed to extend their £1.2bn facility from the end of 2013 to June 2016. The deal is subject to final documents being signed later this month.

Clive Black, analyst at Shore Capital, who has been a long time bear of the shares, upgraded his recommendation from 'sell' to 'hold'. He said: "We hesitate to say that Premier's balance sheet issues are sorted because it remains highly indebted and there is much work to still be done before its trading profits start to demonstrably rise and its debt structurally falls."

The deal is the first major success for Mike Clarke, who arrived as chief executive in August last year and has been forced to issue a raft of profit warnings and announce 600 job losses.

His strategy is to back just eight of the 60 or so brands the company owns, with these brands, including Ambrosia, Hovis and Oxo, receiving the bulk of advertising spend as well as focus on new product development.

It also hopes to sell off its jams and honey business.

The company, which recently launched new advertising campaigns for Mr Kipling, Sharwood's and Loyd Grossman, said its 2011 results would be at "the end of market expectations".